Earlier this morning, embattled insurer American International Group (NYSE: AIG) announced that it is going to reduce its outstanding federal loans by $25 billion by giving a preferred stake in two spin-off units to the government. The two subsidiaries, American International Assurance and American Life Insurance, will be spun off into "special purpose vehicles" ahead of initial public offerings. The Federal Reserve Bank of New York will receive interests in the special purpose vehicles (SPVs), both of which will eventually become independent companies after the IPOs are complete.

The $25 billion breaks down like this: the Fed will receive $16 billion in preferred assets in American International Assurance and $9 billion in American Life Insurance. Reportedly, the outstanding debt for AIG will be cut to $15 billion thanks to this move. AIG now has as much as $182.5 billion in funding available from the government, extending the original offer of $85 billion from back in September.

In what an attorney calls a story of "anger, betrayal and cover-up," we are learning that former American International Group (NYSE: AIG) CEO Maurice "Hank" Greenberg may have taken $4.3 billion in stock from the company in 2005.

This "withdrawal" reportedly occurred shortly after Greenberg was forced out of the company as he was being investigated for accounting irregularities. Attorney Theodore Wells told a jury in Manhattan yesterday that Greenberg "was mad. He was angry," deciding to give the okay to tens of millions of shares being sold from a trust fund shortly after being jettisoned from the company. The fund was put together to provide incentive bonuses to a group of AIG management and employees that they would receive when they retired.

General Motors (NYSE: GM) announced this morning that not enough of its bondholders agreed to swap its debt for company stock, pushing the automaker even closer to bankruptcy. GM was offering to exchange $27 billion in unsecured debt for 10% of the company's stock. The struggling Detroit damsel has until Monday to finish its restructuring or it will file for Chapter 11 bankruptcy protection. This deadline was set by the government and includes requirements regarding debt reduction, labor cost cuts and plant closures.

Days ahead of the release of the bank stress test results, reports have surfaced that Citigroup (NYSE: C) may attempt to raise capital from private investors rather than take more U.S. bailout funds. Such a move could strengthen the firm's equity without giving the government more control.

Although the results of the test haven't been released, it is widely known that Citigroup is considered one of the banks that will need to raise cash to continue (some reports state more than $10 billion).

American International Group (NYSE: AIG) just can't get out of its own way. Seriously, if you want a blueprint of how not to spend "free" money from taxpayers, just read the media's coverage of the bank.

According to MarketWatch, the company is going to pay $450 million to employees of the unit that was basically responsible for the bank's collapse, you read that right.

It definitely seems that this decision is not resonating well across the nation's capital, as Larry Summers (economic advisor to the President) said that the payments are "outrageous." Democratic senator Barney Frank told Fox News that the government needs to look into whether or not these bonuses are "legally recoverable." Yet another Democrat, Elijah Cummings, wants AIG CEO Edward Liddy to resign.

Yes, Uncle Sam is going to continue buying stuff and stimulizing (a new word for the new economy) with money it prints. And -- getting back to pure Yogisms -- it ain't gonna work.

The net decline in wealth -- including the stock market, housing, private equity, etc. -- plus the withdrawal of credit now totals $415 trillion or more. You think $700 billion for concrete and a fat guy holding a "Go Slow" sign is going to help?

Roosevelt calmed people by spending a fortune in and on the Works Progress Administration (WPA) -- great buildings and better murals, but not a lot of long-term economic impact.

We are a bit too advanced for that kind of naïve reaction. Not to mention the government is going to need many more trillions to fix the financial system.

And that's the rub -- even Uncle Sam cannot help too much, long term, as the world kicks its addiction to excess credit. And with that goes a big drop in fundamental demand, from the United States to China.

Be sure to read all 7 reasons the stock market isn't going up any time soon.

Michael Shulman is a contributor to OptionsZone.com.

The government bailed out banks to the tune of $234 billion so far ($205 billion for Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) plus $29 billion for the Bear Stearns deal). Now General Motors (NYSE: GM) wants a $50 billion bailout (in the form of loan guarantees). So why not give the airline industry a bailout too?

After all, Wired reports that they're poised to lose $5.2 billion this year. Why? Well it doesn't help that "fuel bills have jumped $50 billion this year to an estimated $186 billion. Jet fuel now accounts for 36 percent of the industry's costs, up from 13 percent just six years ago," according to Wired. So why not bail out the industry -- after all it's hard to have a global economy if the airlines can't operate flights. To its credit, airlines seem to have had some success in pushing Congress to crack down on oil speculators -- oil's price has fallen from $147 to $101 in the last few months.

But since the administration seems to be in such a giving mood -- after all, our VP notes that his hero, Ronald Reagan, "proved deficits don't matter." And after bailing out banking, automobiles, and airlines, maybe they can get around to bailing out the three million homeowners in foreclosure and the 39% of mortgage holders whose properties are "underwater." Finally, why not use more taxpayer money to compensate investors whose stocks have lost 13% in the last year? Anybody else want a bailout?

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.

The New York Times reports that General Motors (NYSE: GM) wants a $50 billion bailout due to the credit crunch. It says it can't get the money it needs to build fuel efficient cars. But during the decade, when it was minting money from SUVs and trucks sales, GM could have invested those profits in fuel efficient products. Now that those profits have evaporated, it wants taxpayers to step in.

What kind of bailout does GM want? The Times reports it seeks $50 billion in government-backed loans to retool its plants to build fuel efficient cars. GM is not alone -- Detroit's automakers and the United Auto Workers (UAW) already requested Congress to "appropriate $3.75 billion to back the $25 billion in loans authorized last year." Now they want to double that amount and are "urging Congress to act by the end of September so that the money can be available next year." No doubt the industry is in trouble. The Times reports that "total sales for [August are forecast to be] 14.4 percent lower than a year ago and that G.M.'s sales [will drop] 27.5 percent."

But the economic logic for this taxpayer-funded bailout is tenuous. GM wants the government to leave it alone when it comes to fuel efficiency and it made huge profits on gas guzzlers before the price of oil shot up from $24 a barrel to $117. Thanks to GM's lack of investment in fuel efficient vehicles, its losses are soaring. Most recently it lost $4.4 billion and its revenues plunged 33% from $29.7 billion to $19.8 billion. It wants our money to make up for its bad management. Since its current CEO, Rick Wagoner, has taken over, GM's stock price has fallen 83%. But he still has the support of GM's board.

Investors in Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) must be applauding the government bailout. To my knowledge, it is unprecedented for the government to trade this openly in the stock of a private company. It is as if the government has become Goldman Sachs Group Inc. (NYSE: GS) which is not surprising since the Treasury Secretary, Hank Paulson, used to run Goldman.

Based on what has happened it looks to me like the Administration is trying to prove just how incompetent government is so we will agree to cut its budget. There are two possibilities: either the government knew how bad things were and did nothing or it didn't know. If it did know how bad things were, it should have done something to fix the problem, such as requiring Fannie and Freddie to raise more capital a year or two ago.

Perhaps it knew last week how bad things are and did not release data supporting its claim that they were in good shape because such data did not exist. If they were in good shape, the government should have been able to release comforting data and the problem would have gone away. The need to announce the bailout plan as a way to save them suggests an amazing lack of insight into their ability to cover their liabilities years or a realization that they were bankrupt and needed to be bailed out.